Preference is subjective, whether in personal life or stock market investing. Here, an investor’s preference is a strong belief in a sector that delivers consistent returns. It is why some investors are confident about some sectors earning handsome returns.
However, we may ditch our preferred stocks or consider adding stocks of high-performing sectors, such as technology, owing to their growth potential. Understanding the technology sector, strategic investment decisions and the business environment determines success in investing in growing tech stocks.
Research and Ranking, as a part of Equentis Wealth Advisory Services Private Limited, a SEBI-registered share market advisory, has put together pointers to help you make top-notch growing tech stocks a part of your portfolio.
But first, we start with the basics.
What are Tech stocks?
A tech stock is the share of a technology company. A tech company focuses heavily on developing, manufacturing, or distributing technology products, services, and solutions. Technology firms that cover a broad spectrum include established dominant players such as Apple and MS, mid-sized companies, and start-ups.
Some of the high-growth tech stocks in India known to have delivered consistent results are Tata Consultancy Services, Infosys, HCL, Wipro, and Tech Mahindra.
Types of Tech Stocks
Tech stocks typically fall into the following categories:
Hardware companies: These companies are involved in the manufacturing or designing of computers, smartphones, servers, and other electronic devices.
Software companies: Companies that develop and sell software applications, operating systems, and other digital solutions come in this category.
Internet and E-commerce companies: This category includes businesses in E-commerce, Social Media, Search Engines, and online advertising.
Semiconductor manufacturers: These companies are in the business of designing and manufacturing semiconductors that are used as inputs in other electronic devices.
Telecom companies: These are companies that provide internet services, mobile networks, and telecom infrastructure.
Biotech and healthcare tech companies operate in the healthcare tech and biotech sectors to develop medical technologies, pharmaceuticals, and digital health solutions.
Deeptech companies are involved in advanced scientific discoveries in technology and engineering, such as Artificial Intelligence, Machine Learning, Blockchain, and Metaverse.
Then there are also Web 3.0, transportation, and streaming companies with technology at the heart of their operations.
Let us now dive into the strategies of investing in high-growth tech stocks.
Company fundamentals: Begin investing in high-growth tech stocks by studying the company fundamentals such as balance sheet, liquidity, leverage, or debt positions and their stance on risk management.
Stay in it for the long haul: High-growth stocks typically give good returns when
you give them time to grow. Investing by itself is a long-term game, and one should avoid frequent changes to your portfolio.
Buy and hold: The simple yet powerful strategy of buying and holding on to high-growth tech stocks for a considerable time works well. It is because you are not timing the market by buying low and selling high.
Invest regularly: As high-growth tech stocks are volatile, it is advisable to invest periodically to help even out the impact of extreme market volatility that can affect the average purchase price.
Diversify your stocks: It always helps to diversify your investments across industries/companies in the tech sector to minimize the impact of volatility. Consider investing in semiconductors, hardware, software, and solar energy to protect your portfolio from shocks.
Stay informed and avoid impulsive decisions: Having decided to stay longer, do not worry about short-term fluctuations. However, stay updated on the latest market and sectoral trends, continue to research, and only decide to buy a stock after checking its valuation and understanding business risks and market competition.
Risk Management: This strategy is closely related to setting clear and realistic goals. Risk management involves setting realistic stop-loss levels and assessing risk tolerance regularly. It helps safeguard the investor’s portfolios during periods of volatility.
Pros and Cons of Investing in High-growth Tech Stocks
High returns: Well-thought investment strategies in high-growth tech stocks can give impressive returns, at times more than the market, and significant capital appreciation.
Potential to innovate: It is prudent to have equity in such promising high-growth tech stocks for their ability to revolutionize industries worldwide that can drive growth.
Possibility of dividends: Investors can benefit from tech stocks that pay dividends besides the capital appreciation they offer when sold.
Volatility: High-growth tech stocks are susceptible to volatility. Market swings can lead to significant gains while posing a risk of substantial losses.
Regulatory challenges: Owing to the fast-evolving nature of the industry, the uncertainty surrounding tech companies can play a spoilt-sport to their operations, creating risk for the investors.
Competition: As an investor, one may experience downside risk to their tech stock owing to stiff competition, changing consumer preferences, and new entrants with disruptive technologies.
Rewards from investing in high-growth stocks can accrue when one learns to carefully balance strategy and risk after thoroughly understanding the sector. Technology shapes industries globally. Prudent, foresighted investors succeed financially.